NAME GAME

What is in a name? A question that we often ask about various things in life. In the context of marketing, many of us relate this question to the concept of a brand. When we mention brands such as Apple, Coca Cola and so on, they conjure up various perceptions, opinions and beliefs. The stronger the brand equity, the more positive the perceptions and viewpoints.

In late 2019, Sports Direct owner, Mike Ashley recommended to its shareholders that the company should re-brand as Frasers. He justified this move because it reflected its “elevated” strategy. It also focused on the changing profile and customer proposition of the group.

Initially I was surprised by such an apparent major change in its overall positioning in the marketplace.

Why? Well mention the name “Sports Direct” and many people will associate it with low prices, heavy discounting, cluttered stores and so on. Surely, such a strong brand would not “fit” strategically with upmarket brands such as House of Fraser?

Ashley, we should note, acquired a number of various retailers, in an aggressive acquisition strategy during the couple of years leading up to this name-change. These included such a diverse spread as Evans Cycles, Jack Wills, Sofa.com, Game Digital, Flannels and House of Fraser. The latter two retailers traded as up-market retailers. It could be argued that these acquisitions fundamentally changed the portfolio of retailers owned by Sports Direct.

In the case of House of Fraser, Ashley purchased the operation for £90 million in 2018, as part of a rescue deal. This reflected his approach to doing business. Around the same time, Debenhams also underwent major financial hardship. Ashley always sought out opportunities where bargains could be acquired – such struggling, well-known retailer brands. This bid did not work out.

Shortly after acquiring House of Fraser, Ashley expressed regret at the purchase. He inherited a struggling brand, the associated debt and over fifty outlets with expensive leases.  He went so far as to state that the problems were terminal. Subsequently he announced that he planned to “roll out” a chain of luxury high street stores, named Frasers. These outlets would carry a range of beauty, sports and luxury fashion items.

In some of the closed House of Fraser stores, Ashley began to stock them with discounted Sports Direct merchandise and re-opened them for business. He argued that it made sense to re-brand some of the other stores as Frasers, in order to reinforce the image of a new and luxury mini-retail chain, selling more expensive and exclusive labels. This appeared also to support his long-term vision of turning the Group into the “Harrods of the High Street”.

The overall Sports Direct Group has a market value of around £1.8 billion. Ashley justified the re-branding of the Group’s name as Frasers Group to reflect its changing circumstances: based on moving away from a sole dependence on the sports items, to that of a lifestyle brand.

As we mentioned earlier, the original Sports Direct brand has constantly attracted criticism from various stakeholders over the years. As well as being perceived as selling cheap and low-price sports trainers and clothing, it received heavy criticism for the low pay of its staff (many on zero hour contracts) and overall working conditions. Ashley’s background as an opportunistic entrepreneur, initially operating in market stalls, never fully disappeared as his business empire grew.

His acquisition of Newcastle United football club consistently attracted criticism from it fans. Such negative comments revolved around his lack of understanding of football, his unwillingness to pour money into the club and his attempts to change the name of the stadium to “Sports Direct”.  Critics also accused him of using the perimeter advertising as an opportunity to promote Sports Direct. To be fair, some argue that Ashley simply applied the basic principles of running a business to the football industry and treated his ownership of the club as a business asset to be exploited accordingly.

Disputes with fellow board members and accountancy firms (over auditing the corporate accounts) further reinforced the perception among some commentators, that Ashley was “damaged goods”.

In summary, Ashley would appear to have run a very successful sports apparel brand in the case of Sports Direct. It has continued to make money. However, in his quest for further development, he acquired an eclectic range of other retailers to build up his empire over the past few years.

His main motivation appears to revolve around the desire to shed the overall image of being “cheap and cheerful” and move into more upmarket and exclusive areas that broadly address the lifestyle and luxury dimensions of the retail sector.

What are we to make of such a strategy? In fact, we might begin by posing the question as to whether or not there is any evidence of a planned and strategic approach to the development of the Sports Direct (now Frasers Group) brand in the first place.

A cynic might suggest that the acquisition of the retailers mentioned in the preceding paragraphs came from opportunistic and accidental motives. Hence, the position that it currently finds itself in: operating in a range of apparently diverse retail businesses.

Other commentators might argue that it reflects the entrepreneurial and pioneering approach of Ashley: always seeking out opportunities from potentially “high-risk” ventures, and willing to “put his money where his mouth is”, to back up such a strategy.

In some ways, the strategy poses more questions than any “ready-mad” answers.

Arguably, Ashley has thrashed many of the basic principles of branding and positioning. For instance, how can you maintain consistency, clarity within your communications to your customers, if you utilise a standard name: Frasers, to encompass a range of different retail brands?

Is it credible to suggest that you can sufficiently differentiate your value proposition when your core brand is locked into the discount, low price segment of the market, while at the same time trying to project some of your brands in the exclusive and more upmarket segment?

By retaining the different brand names such as Flannels and sports Direct, is Ashley in danger of confusing the respective target markets with mixed messages?

Many commentators argue that in order to reposition a brand, it is essential that internal change is critical. Unless the group changes its approach to its treatment of workers and working conditions, it will be almost impossible to change peoples’ perceptions and attitudes to the brand. A simple change of name will not achieve this objective.

Somebody once said that the true test of successful brands and how they are developed is based on what people say about you, when you are not in the room. This explicitly reinforces the view that a simple name change will have little impact on people’s perceptions. Rather, it requires a fundamental shift in corporate culture from within. There is little apparent evidence that this is happening within the overall group.

Within its core business (Sports Direct), the Fraser Group faces intense competition from retailers such as JD Sports. Is there a danger that Ashley, by moving more fully into the general, lifestyle market, will “take his eye off the core business” and ultimately run the overall group into the ground? Let’s see.

ARMAGEDDON

As we start 2020, the ongoing debate about the future prospect for the high street continues apace.

I have discussed this topic in previous blogs and one consistent pattern emerges from a review of the evidence: that there is no real future for the high street, with one or two exceptions.

As we enter 2020, I thought it would be timely to generate further discussion on this “well-worn” thread.

Experts predict that over 7,000 stores will close in 2020, leading to job losses of around 125,000 positions in the retail sector. The bulk of these closures will come from retailers that operate ten stores or more. Such observations are based on the following trends. A proposed increased in the minimum wage, business rates and the infrastructure surrounding many of the locations in the typical high street.

The period leading into the Christmas season usually provides a sound indicator of what is likely to emerge in the New Year. Footfall figures would appear to indicate a four per cent decline on the same period for 2018. Major retailers such as Debenhams, a high-profile casualty of 2019 announced in early January that it intended to close nineteen of its intended fifty stores divestment. Around the same time as this pronouncement, the UK government indicated that it intended to raise the minimum wage six per cent; to £8.72 per hour.

The business rates that retailers pay for the right to operate on the high street are predicted to rise by 1.7 per cent. This will generate an extra £95 million from the larger retailers.

By contrast, Amazon UK Services (responsible for handling fulfilment centres and customers) paid £1 million on a £2.3 billion turnover.

The issue of business rates engenders much heated discussion. Its critics argue forcefully that it places a high strain on the cost to retailers of doing business on the high street. This is particularly annoying, they argue, because it create an uneven playing field: online, pure-play retailers are not subject to this form of tax. This leaves them in a stronger position to compete, given the relenting pressures on managing costs and margins.

In response, the government states that it has addressed the problem by helping smaller stores. In particular, they argue that retailers with a rateable valuation of less than £51,000 had their business rates reduced by over one-third, with the discount rate increasing to 50 per cent by April 2020. Cynics claim that many small retailers do not pay business rated anyway and this distracted people from the key problems.

Local councils (who are responsible for generating revenue to run their respective cities and regions) have taken a pounding as the high street continues to stagnate. Many of them invested heavily over the years in attracting retail property developers to establish shopping centres. If we continue to see stores closing on the high street, this valuable source of revenue will dry up, leaving large deficits to address on the part of the local authorities and councils.

Retail experts have undertaken government-sponsored evaluations of what can be done to improve the lot of the high streets. One in particular, Mary Portas, generated a number of recommendations to address this problem. They included the following initiatives.

  • A designated sum of money to be allocated to specific towns and cities in order to develop and improve the infrastructure
  • Investment in public transport to attract shoppers into the high street
  • Reductions in the cost of parking in such areas, in order to make it easier to access shops
  • More creative design of the high street e.g. innovative and unusual shops
  • Reduction of business rates
  • Themed events in the high street such as Christmas markets, live music, festivals and so on.

Many of these recommendations were not taken up by the respective stakeholders, leading many commentators to conclude that there was a lack of willingness to focus on the key obstacles to rejuvenating the high street.

In my view, the evidence of stagnation and decline is visual. Please walk around any major high street in your town or city and assess what you witness. I suggest the following will “jump out” at you. A preponderance of charity shops (who receive very cheap rent agreements in order to make the high street look “busy). Betting shops (indicating the popularity of gambling), derelict spaces that appear to be falling down in many cases. Parking wardens pursuing the hapless car-owner with the zeal of religious zealots. Badly lit up spaces, particularly when darkness falls. Beggars and chuggers harassing pedestrians as they pass through. A preponderance also of payday lenders and pawnshops exists on the high street. Furtive activities (such as drug dealing) taking place down back alleys. Need I go on? It leads to the inevitable question. Why would anyone in their right mind go to the bother of visiting the high street when everything is available to them online?

However, I need to be more realistic and objective in my assessment. There are always two sides to an argument.

Proponents for rejuvenating the high street argue that online retailing does not provide an engaging and positive experience for shoppers. In many cases, the design and layout of the website makes it difficult for shoppers to navigate their way to their ultimate destination (i.e. what they are looking for).

Others argue that online shopping is not tactile: it struggles to make use of atmospherics (a common feature of “bricks and mortar” stores). This results in a “sanitised and clinical” shopping experience.

The academic literature and research suggests that the best response from the high street should be grounded in the customer experience. Specifically retailers should capitalise on the ability to invest in “shoppertainment” and accept that they will never compete directly with pure play online retailers on issues such as price. Instead, by focusing on the merging of the online and offline experience, combined with technology, they can continue to attract shoppers to their respective physical premises.

In this situation, I refer you to John Lewis. This retailer revamped one of its major stores (Southampton) with the focus on providing what it labelled “experience playgrounds”. Specifically it created spaces in the store to offer customers cookery classes, gardening talks, beauty makeovers and advice on technology. Senior management see this as a precursor to future developments across its portfolio of physical stores.

Therefore, if we are to follow the examples of John Lewis and other retailers such as IKEA, we will increasingly see physical retail outlets and the high street becoming entertainment centres. This may provide the opportunity to reduce the increasing gulf between online and offline shopping.

The UK government recently announced yet another initiative by making money available to rejuvenate fourteen designated towns in England. Is this a case of “more of the same”?

In my view, governments, retail property developers and retailers will also need to “step up to the plate” and fully embrace the concept of “shoppertainment” if this strategy is to generate dividends going forward. Creating such entertainment venues in badly designed, shabby and expensive physical spaces such as the high street will not necessarily bring shoppers back to the high street. A recent report by the Centre for Retail Research indicates that an average of 2,750 jobs per week in the retail sector will disappear in 2020. Whether the concept of “shoppertainment” will work in the long run is problematic. Let us see.